It’s refix time…
We have a mortgage due to refix soon, what’s the move?
This is a question that I’m asked about a lot. Over the last few months rates have shifted lower and lower. This movement has been “just a touch” earlier than what was expected and what the RBNZ had indicated they wanted to see this year. But it’s great news given that lower interest rates mean lower repayments for those coming off the high rates we’ve had for the last year or two.
It can be confusing trying to work out what’s the best strategy when it comes to refixing, but right now it’s really crucial that you have your lending structured right for you and your plans moving forward.
With rates expected to continue on a downward trend, the question then becomes how fast and how much are they going to go down by and what’s the right thing to do? As the answer to this question will heavily affect a decision to go with one structure vs another.
Although there’s no crystal ball to look into and get a definitive answer when considering this, there are tools available that help us to make the best educated decision we can with the information available today.
Whether it’s working out if there’s actually an advantage to fixing for a shorter term in the hopes to catch rates on the way down or simply positioning your lending in a way to be able to make the most of the next move in your interest rate position, we can help.
It’s really important to remember that just because one person has found it to be an advantage to do one thing, that same strategy might actually disadvantage you in your particular situation so it really does pay to get some advice when considering your options. I often say that our financial situations are as individual as our tastes in music or movies etc.
For example, some clients I worked with earlier in the month fixed their lending for 6 months in the hopes that they can make the most of any further reductions on interest rates over that time. This was a great move for their strategy in my opinion and because of their situation, is relatively low risk to them.
On the other hand, I worked with some clients just last week where it was found to be more of an advantage for them to fix for 12 months instead. Again, this was a great move for their strategy in my opinion and because of their situation, is relatively low risk to them.
The really interesting thing is that both lots of clients were in the same age group, had similar levels of lending, both planned to stay living in the house they own for about the same amount of time and were actually both with the same lender as well. The key differences when considering what to do and what determined the different results in their respective structures were the locations of the properties and the LVR (loan to value ratio) position of the properties.
One lot of clients were reliant on the LVR position of their property improving by a certain amount due to a Low Equity Margin being applied to their lending, which if it works out will save them alot on the interest rate, whereas the others were not reliant on that at all.
This swayed how we considered their strategy when looking at the term to fix for. When taking into consideration the potential for improvement on the LVR by looking at recent data around this, the total cost of one term vs the other and the outlook for where the next rate needs to be in order for one to be an advantage over the other, we were able to come to a decision that looks likely to be the right one.
You might be surprised if I were to tell you which clients went with which fixed rate term too, but only time will tell if it works out, but in my opinion they’ve both made the right move. The right move for them that is.
If you would like some help deciding what the next move is when looking at refixing, or even to bounce an idea off me for a bit of reassurance please get in touch. The advice I give for this is 100% free to you and considers the latest information and data to make sure you can make the best informed decision you can when the time is right.